Processors: National Milk Distorts Congressional Research Service Dairy Report

The International Dairy Foods Association said today that the analysis of the proposed dairy programs that was recently issued by the Congressional Research Service provides useful information for legislators as they continue work on the 2012 Farm Bill this fall.

The CRS report, "Dairy Policy Proposals in the 2012 Farm Bill," provides a detailed explanation of existing dairy programs, as well as an explanation of two competing proposals to replace those programs.

“You can read that report until the proverbial cows come home and you will not find anywhere that it concludes that the Dairy Security Act is the best approach for dairy farmers, as was falsely claimed by the National Milk Producers Federation,” said Jerry Slominski, IDFA senior vice president of legislative and economic affairs. “The CRS is a well-respected and bipartisan service that doesn’t take sides on issues like this.

The CRS is a non-partisan agency that provides policy and legal analysis to members of Congress. Although the Senate already passed its version of the Farm Bill last June, the House version of the bill is awaiting floor debate and a likely vote to eliminate a controversial program to limit milk supplies.

The CRS report explains how the DSA would work and highlights the debate over dairy supply management. It provides details of how margin insurance payments would be determined but also calculates an example of how the controversial DMSP would have resulted in reduced income of $7,280 as a “production disincentive” for a typical dairy farmer if the program had been in effect earlier this year. According to the report, the Goodlatte-Scott approach would eliminate the DMSP in favor of providing only a margin insurance program.

The CRS report details several other ways to compare the Dairy Security Act to the Goodlatte-Scott approach. For example, under the DSA, dairy farmers seeking the protection of free catastrophic margin insurance would be required to sign up within the first year after the program begins and to participate in the DSMP, becoming subject to its periodic income reductions during the entire five-year duration of the Farm Bill. Under the more flexible Goodlatte-Scott approach, dairy farmers would annually decide whether to sign up for margin insurance coverage.

Slominski cited several other comparisons included in the report:

• Both the Goodlatte-Scott and DSA proposals provide fully-subsidized catastrophic margin coverage up to the first 4 million pounds of milk production. Under both proposals, base catastrophic coverage is limited to 80 percent of the same historic production.

• The DSA would annually collect fees from dairy farmers ranging from $100 to $2,500, while the Goodlatte-Scott approach would eliminate those fees. IDFA notes that the Congressional Budget Office has estimated those fees would raise $8 million or more annually and that only dairy farmers would be required to pay fees for government-subsidized agricultural commodity insurance.

• The report verifies that “88% of U.S. dairy farms had annual production of 4 million pounds or less” in 2011. IDFA notes that because the Goodlatte-Scott approach offers the same or lower rates than does the DSA at all levels of margin coverage of under 4 million pounds, their approach provides comparable insurance at the same or less cost for a large majority of dairy farmers.

• CRS reported that the “concept behind the DMSP program is that payment reductions are intended to have one or both of two basic effects, either of which is expected to result in a higher future farm price for milk – a demand effect stimulated by USDA use of diverted milk payment funds, or a supply effect as payment reductions encourage milk producers to reduce their milk deliveries.”

• The report added that the stabilization program “may cause the price of exportable dairy products to increase” and cites at least one study that predicted a decline in exports if the supply management program becomes law. This contradicts NMPF’s argument that the bill is designed to prevent a loss of export markets and a surge of imports.

• After describing previous milk supply management programs that were quickly abandoned, the report added that unlike those two programs that offered incentives to farmers, “the DMSP punishes farmers for increasing milk marketings relative to a base.”

IDFA strongly believes that limiting milk supplies with a supply management program like the DMSP would hurt the growth of the dairy industry and that the Goodlatte-Scott approach proves that a stand-alone margin insurance program can provide stable market prices as well as an effective revenue protection plan for dairy farmers.

“IDFA agrees with the CRS report conclusion that a key question facing policy makers is whether supply management is an essential part of a margin-based strategy,” said Slominski. “The CRS report provides arguments on both sides but very clearly leaves that decision for others to decide.”